Authorized capital RUR thousand 9 000

Retained Profit RUR thousand 2 500

Long term Debts (Loans) RUR thousand 7 800
Average interest rate on long-term loans % 14,0
Sales RUR thousand 18 900
Total costs RUR thousand 14 800
Corporate income tax rate % 20,0

a) Total Assets = current assets – current liabilities

= Long term debts - Retained profit

Total Assets = 5 500r

Current assets = Long term debts

Liabilities = retained profit + Total costs

Current liabilities = Retained profit

Balance sheet snippet:

Current assets: Long term debts(loan) 7 800

Liabilities:

Retained profit 2 500

Total costs 14 800

Total assets 5 300

b)

Financial leverage is when a company/individual borrows money for an investment that might produce
greater returns.

Financial leverage = short term debt/ shareholder debt.

Or

Financial leverage = Earnings before interest and tax / Earnings before Tax

Earnings before interest and tax = Sales – Total costs - interest

Earnings before interest and tax = 18 900 – 14 800

Earnings before interest and tax = 4 100r

Earnings before interest and tax - interest = 4 100 -1092

Earnings before Tax = 3 008r

Therefore

Financial leverage = Earnings before interest and tax / Earnings before interest and tax – Interest

Financial leverage = 4100/3008

Financial leverage = 1.36 times

c)

Degree of financial leverage = % change in Net income/ % change in Earnings before interest and tax

OR

Degree of financial leverage = Earnings before interest and tax / Earnings before Tax

d) Determine which sources of financing are more profitable for the enterprise to use in the planning
period: own or borrowed?

- Business maintains complete control

- Enhances the planning process
- Lowers overall cost of the project.
- It will improve the reputation and value of the business.

However with External funding,

- There will be loss of ownership

- Accrued expenses like interest

Therefore, I conclude that internal (own) funding is more profitable for the enterprise.